American International Group (AIG), the world’s largest insurance company, purchased favor on Capitol Hill with over $9 million in campaign contributions to federal candidates during the past 20 years. Sen. Chris Dodd (D-Conn.), chairman of the Senate Banking Committee, received more than $280,000, making AIG his fourth largest contributor. So from the start his perspective for doing his Senate job was tainted. Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, got $91,000, making AIG his largest contributor. So much for the other Senate contribution to oversight. So the two senators charged with protecting the public interest were co-opted by the very firm they were supposed to be watching.
These funds were spent on Sept. 22, a week after the Federal Reserve extended an $85 billion emergency loan to AIG to keep it from going bankrupt due to insurance liabilities. According to the receipt from the St. Regis, the eight-day company retreat was a lavish one — $139,000 was spent on hotel rooms, while even more money — $147,301 — was spent on banquets. Another $23,380 was spent on undisclosed spa treatments and another $6,939 was spent on golf. A full $9,980 was spent on room service and food and cocktails at the hotel lounge.
Unsanctioned Payments To “Trading Partners” ($120 billion)
Next, AIG distributed over $120 billion of the money intended to improve the economic climate in the United States to other private businesses, banks, and municipalities, both in the US and abroad. European firms Société Générale SA and Deutsche Bank each received nearly $12 billion.
After calls for more transparency, AIG disclosed Sunday that roughly two-thirds of the $173.3 billion in federal aid it received has been paid out to trading partners such as banks and municipalities in the U.S. and abroad…. There are political risks to the disclosures, notably the fact that taxpayer dollars are essentially passing through AIG to make whole private businesses and foreign banks.
Then, as if the political bribery, personal indulgence, and unsanctioned largesse to other agencies were not egregious enough, AIG payed huge bonuses and retention stipends to the very employees who did such a lousy job.
On Sunday, new criticism emerged about $450 million in bonuses paid to employees of AIG’s Financial Products unit, which made a series of bets on credit default swap contracts that drove $40.5 billion in losses last year….
The payments at AIG’s financial-products unit are in addition to $121.5 million in incentive bonuses for 2008 that AIG will start making this month to about 6,400 of its roughly 116,000 employees. Separately, AIG is also making $619 million in retention payments to 4,200 employees.
Together, the three programs could result in roughly $1.2 billion in retention and bonus payments to AIG employees. At least some individual employees are receiving millions of dollars — at the financial-products unit, for instance, seven employees will get more than $3 million for 2008, according to an AIG document.
Troubled insurer American International Group Inc., now 80% owned by U.S. taxpayers, spent the weekend deflecting mounting criticism of how government funds have been funneled to various banks and used to pay employee bonuses at the business unit that almost sank the company.
The inept government agencies that engendered this debacle immediately began scrambling to appear on the side of the just.
SPIN METER: Cue the Washington outrage
For months, the Obama administration and members of Congress have known that insurance giant AIG was getting ready to pay huge bonuses while living off government bailouts. It wasn’t until the money was flowing and news was trickling out to the public that official Washington rose up in anger… Why the sudden furor, just weeks after Barack Obama’s team paid out $30 billion in additional aid to the company?
Speaking with CNN on Tuesday, Senator Christopher Dodd disclaimed knowledge of the bonus loophole in the AIG bailout agreement. But the original draft had contained a clause that prevented the bonus payout, and Dodd had been involved in rewriting it to permit bonuses, a fact which gave the lie to his claims of innocence. When confronted with this discrepancy by CNN reporters on Wednesday, Dodd tried to gloss over his misrepresentation:
In an apparent change of his position, U.S. Sen. Christopher Dodd said Wednesday that he was aware of changes in legislation for a loophole that allowed highly controversial bonuses for AIG, the embattled insurance company that has received federal bailout money.
In a live interview on CNN, Dodd said, “I agreed reluctantly. I was changing the amendment because others were insistent.”
Previously, Dodd had said he was not a member of the conference committee that crafted the final version of the highly complicated bill. But he had come under strong fire from Republicans and others as the person who was involved in what CNN anchor Wolf Blitzer had called a “mysterious loophole” in the legislation.
When Blitzer asked Dodd what had changed in his understanding between Tuesday and Wednesday, Dodd replied, “Going back and reviewing it. … I apologize if we had some confusion.”
More interesting than Dodd’s getting caught in his own two-version story is the fact that, in his discomfiture, he blurted out the choice morsel that the “administration” had directed that the bonuses be allowed. So now reporters are frantically “working their sources” to determine whether Dodd meant socialist Obama or tax cheat Geithner.
Obama appeared guilty. Instead of facing reporters in Washington, he quickly made a trip to California to appear at a couple of town-hall meetings. There he could be photographed against a backqround of cheering liberals, doing what he does best, spouting campaign rhetoric.
Before leaving, Obama uttered that famous phrase that presidents use just before throwing someone under the bus to cover their own sins:
In response to a reporter’s question, Obama said that he had “complete confidence” in Treasury Secretary Timothy Geithner….
The total number of registered voters in Connecticut is 2,097,635. The largest group of registered voters in Connecticut is unaffiliated, accounting for 883,274 voters. There are 779,784 registered Democrats and 427,020 registered Republicans.
Dodd Under Fire For Legislation Behind AIG Bonuses
A mini-firestorm exploded Wednesday over U.S. Sen. Christopher Dodd’s role in legislation regarding the huge bonuses at AIG, the highly controversial insurance giant that is receiving about $170 billion in federal bailout money….
As Blame Game Deepens, AIG Outrage Could Give GOP Electoral Opening
After two straight electoral drubbings, Republicans finally might have found a path to the soul of the voters: AIG.
The GOP tried to harness taxpayer outrage last month when Congress was debating a stimulus package five times bigger than the first one. But the package passed, and Democrats’ poll numbers only increased.
Voter outrage could be more consolidated this time, following revelations that bailed-out American International Group paid $165 million in bonuses to employees at a rogue financial unit.
Christopher Dodd’s Earlier Sins
Of course, this comes on the heels of the Countrywide loan scandal, in which Dodd refinanced two mortgages with Countrywide under much-lower-than-average rates at the same time he was pushing favorable legislation for them in the Senate.
There’s more. Real estate partners William Kessinger and Edward R. Downe Jr. are friends of Chris Dodd. In 1993 Downe (guilty as sin) was convicted of insider trading and ordered to pay the SEC $11 million. When Dodd found an Irish cottage that he wanted but could not afford in 1994, Kessinger shared the purchase with Dodd, making two-thirds of the down payment. In repayment, Dodd obtained a presidential pardon for Downe from Bill Clinton. Rental covered the mortgage payment, and years later, when the property had appreciated substantially, Dodd refinanced with an Irish bank and payed back Kessinger two-thirds of a much earlier lower appraisal, making a tidy profit. From the Hartford Courant — Dodd’s ‘Cottage’: A Cozy Purchase:
In 2001, Dodd did the favor of a lifetime for his pal, Downe. The veteran senator circumvented the normal Department of Justice vetting process and got Downe a full pardon from President Bill Clinton on his last day in office. Dodd initiated the pardon request and included in his two-page letter to Clinton the tidbit that he speaks to Downe nearly every day.
Speculation based on misinformation characterizes what has become known as “the Kanjorski meme.” So here is a timeline of the events to set the record straight.
Last September, years of bad economic policy encouraged by Congress exacerbated by inept oversight caught up with the financial markets in the United States. Between the failure of Lehman Brothers on September 14 and the heavy institutional withdrawals from money market funds on September 18, a severe loss of liquidity occurred in the financial markets. To stem the tide of withdrawals from money market funds, the US Treasury Department announced a guarantee program for money market funds on September 19.
MARKETS WERE 500 TRADES FROM A MELTDOWN
September 21, 2008
The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post….
According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning.
Felix Salmon of Portfolio.comhas recently observed that these were mostly institutional investors that were selling. It should also be noted that this wasn’t a pure loss. It was selling, which implies that at some attractive lower price, there would be buyers. That’s the way the market works. Also, the only documented source for the figure of $500 billion, or 12% of the money markets, is a newspaper article that doesn’t name attribution.
How The World Almost Came To An End At 2PM On September 18
….Democratic Representative Kanjorski explains how the Federal Reserve told Congress members about a “tremendous draw-down of money market accounts in the United States, to the tune of $550 billion dollars.” According to Kanjorski, this electronic transfer occurred over the period of an hour or two. And it gets worse. Kanjorski paraphrases the … disclosure by Bernanke and Paulson….
For the last 24 years, Rep. Paul E. Kanjorski has toiled in Washington, D.C. in relative obscurity, known best to his constituents who have elected him their representative 13 times….
Jan. 27: Kanjorski spends half an hour on “Washington Journal,” the morning television program of C-SPAN, the cable network whose main mission is airing the official proceedings of the House and Senate.
The C-SPAN appearance gained Kanjorski spinoff air time. His statement that the national and world financial markets came close to a major meltdown in September was picked up Tuesday by the MSNBC program, “Countdown with Keith Olbermann.”….
Kanjorski said all the attention is partly a benefit of his seniority.
“I’ve been preparing 24 years … that if the problem ever did occur, I’d be able to be a major participant in it,” he said. “And it so happened that it did occur in September and I became very active in it. Now that role has just continued to grow.”
He’s also looking, he said, to be more of a crusader….
After that “talk show Tuesday,” the blogs were abuzz with the subject, but by then there was enough misinformation extant to cause problems. Then Treasury Secretary Paulson and Federal Reserve Chairman Bernanke actually visited Capitol Hill on September 23 and September 24, but in his C-SPAN interview, Kanjorski recalled the date incorrectly as September 15. So when he said that the crisis occurred the previous Thursday, bloggers who didn’t do due diligence pegged the crisis on September 11, which gave rise to a whole plethora of Islamic jihad theories.
Rep. Paul Kanjorski of Pennsylvania explains what former Treasury Secretary Paulson and Fed Chairman Bernanke told congress in a closed door session in September 2008 .
“On Thursday [Thursday was September 11th] at about 11 o clock in the morning The Federal Reserve noticed a tremendous draw down of money market accounts in the USA to the tune of $550 Billion dollars in a matter of an hour or two. Money was being removed electronically.” says Kanjorski.
Whooah! Why are we just now hearing about this? Where’s the media? Why wasn’t there an official statement?
This was a Financial Terrorist Attack on the seventh anniversary of 9/11. Aren’t the American people entitled to know who was behind the run on the banks?
Why was this kept from the American people before the most important election in US history?…
Once those two much-visited blogs used the incorrect date, the problem multiplied as other bloggers wrote derivative posts. Sixteen days after the actual C-SPAN interview, the Scranton, PA Times-Tribunediscussed the rising furor in the Blogosphere:
Kanjorski: Economy teetered near collapse
Thursday, February 12, 2009
U.S. Rep. Paul E. Kanjorski is telling anyone who will listen lately the nation and world came within hours of economic collapse in September.
….Mr. Kanjorski’s Jan. 27 appearance on C-SPAN’s morning Washington Journal program is now rocking the blogosphere….
In essence, Mr. Kanjorski said there was an “electronic bank run.” ….
What actually happened? Transcripts of testimony before congressional committees and subcommittees are a matter of public record.
The US Department of the Treasury maintains a list of all the official appearances by Treasury Department spokespersons on its “Press Room” website. Then secretary Henry M. Paulson, Jr. made only two appearances on Capitol Hill in September 2008, a 9/23 visit to the Senate Banking Committee and a 9/24 visit to the House Financial Services Committee. The only statements from those transcripts relevant to the Kanjorski allegations are given below. The testimony before both houses of congress is almost identical. In the second transcript, I have italicized the two words that are different.
….last week our credit markets froze — even some Main Street non-financial companies had trouble financing their normal business operations. If that situation were to persist, it would threaten all parts of our economy….
We have … taken a number of powerful tactical steps to increase confidence in the system, including a temporary guaranty program for the U.S. money market mutual fund industry….
….We saw market turmoil reach a new level last week, and spill over into the rest of the economy.
….last week our credit markets froze up — even some Main Street non-financial companies had trouble financing their normal business operations. If that situation were to persist, it would threaten all parts of our economy….
We have … taken a number of powerful tactical steps to increase confidence in the system, including a temporary guaranty program for the U.S. money market mutual fund industry…. We saw financial market turmoil reach a new level last week, and spill over into the rest of the economy.
Ben S. Bernanke, Chairman of the Board of Governors of the Federal Reserve System, also visited Capitol Hill on the exact same two days as Paulson. His first visit, on September 23, was also before the Senate Banking Committee. His second visit, on September 24, was to a joint committee from both houses. This is the only testimony during that timeframe that could be characterized as remarks to both senators and representatives.
September 23, 2008
….While perhaps manageable in itself, Lehman’s default was combined with the unexpectedly rapid collapse of AIG, which together contributed to the development last week of extraordinarily turbulent conditions in global financial markets. These conditions caused equity prices to fall sharply, the cost of short-term credit–where available–to spike upward, and liquidity to dry up in many markets. Losses at a large money market mutual fund sparked extensive withdrawals from a number of such funds….
Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress. Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy….
While perhaps manageable in itself, Lehman’s default was combined with the unexpectedly rapid collapse of AIG, which together contributed to the development last week of extraordinarily turbulent conditions in global financial markets. These conditions caused equity prices to fall sharply, the cost of short-term credit–where available–to spike upward, and liquidity to dry up in many markets. Losses at a large money market mutual fund sparked extensive withdrawals from a number of such funds….
Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress. Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy….
There is no question that last September was a turbulent period for the financial markets. But it was a result of years of bad legislation by Congress and failure of our regulatory institutions to do their jobs. It was also a result of a pervasive American culture of living beyond our means. The excesses simply caught up with us. We do not need Islamic jihad to do us in, when we are so profligate and careless ourselves.
Our economy provides the means for all of us to have the necessities of a good and decent life — wholesome food, warm and comfortable clothing, safe and adequate housing. But when we stretch beyond our income to acquire large cracker box McMansions, drive gas guzzling sport utility vehicles, and constantly try to outspend and impress our peers, we get into trouble. We are simply experiencing a very severe correction that is a logical result of our rampant materialism.
UPDATE (Thursday, February 19): The Zero Hedge post cited in the above article includes an update referencing a video that purports to substantiate Kanjorski’s claims.
Update – for all who claim that Kanjorski is yapping with a few screws loose upstairs, take a look at this clip…. This is archived footage from the September 24 House Financial Services hearing at which both Paulson and Bernanke are present. Kanjorski asks Paulson this very question, and states to Paulson, that the information came originally from him. Now, Kanjorski may be anything but not senile as he is merely repeating facts that Paulson tells him. And Paulson does not refute the facts.
The assertion is basically that Kanjorski wouldn’t have said the information came from Paulson in the subcommittee hearing if it were not true, and that it must be true because Paulson did not contradict Kanjorski. But that is, in fact, no proof of anything. I didn’t bother to mention this in the original article, because I didn’t think anyone would be illogical enough to buy into it, but apparently some people have. So I add the following….
I was well aware of this update to the Zero Hedge post when I wrote the original post. So I checked it out thoroughly before I published.
Note the technique that Kanjorski used. Kanjorski made the $550 billion assertion, and told Paulson that the information came from him (Paulson). But there is no record of Paulson actually saying that. The way Congress works, while Kanjorski had the floor, Paulson could not interrupt and correct him. All are bound by strict “rules of order.” So the comment “Paulson does not refute the facts” has no evidentiary value relevant to the credibility of Kanjorski’s assertion.
When Paulson finally got a chance to speak, he wisely didn’t waste time going back to that. He used every second of his speaking time to advance his own purpose. He didn’t need to correct Kanjorski for the people who count, because there is an accurate record of what was said — the Congressional Record — which is published and available to the public.
Nor would it have been prudent for Paulson to correct Kanjorski. Paulson is a reasonably class act academic, while Kanjorski is a grandstanding politician. No percentage for Paulson in getting into a dogfight with him. The educated Paulson, although more highly qualified professionally than Kanjorski, a political hack from a coal-mining district, is a political appointee who will be replaced. Kanjorski is rather securely elected from a congressional district somewhat gerrymandered to include the heavy Democratic population centers along PA Route 11 and Interstate 80, among them Scranton and Wilkes-Barre.
If a newspaper repeated Kanjorski’s intentional or unintentional mistake as fact, they could get sued. So they would either check the Congressional Record, or if lazy, just leave the subject alone or repeat the remarks in quotes by Kanjorski (which is what they did). Therefore Paulson did not have to worry about this misinformation propagating as legitimate news. Unfortunately, most blogs are a lot sloppier, and so less credible.
When you want to find out what really happened, you can go through the Congressional Record for the day of the session. Go to this page to select the year that contains the day you want to study — Congressional Record Index
From there you can go to a specific year by selecting “Browse the Congressional Record by Day of Session” and inputting a year. For the present discussion, that’s 2008, and the index for 2008 is here — Congressional Record: Browse 2008-2009
Scroll down to September 23 and 24 for 2008 and you will find that there are 30 records of testimony for those two days. To be sure of your ground, it is necessary to scan all of them. If Paulson quoted the $550 billion figure, it would be in there somewhere.
Now this is difficult and tedious to do, because the PDF is lousy to work with. But I went through them, isolated the relevant testimony, and included links to it for all four complete testimonies in my article. I scrupulously reproduced the wording that had a bearing on the subject, and documented my work all round with hyperlinks.
I had already used Zero Hedge as an example of a blog that propagated the story based on Kanjorski’s TV interview without vetting it. I didn’t bother to dispute their update material at the end of the post because I didn’t want to excoriate them any more than necessary and because it didn’t further the point of my original article.
By Max Rugemer | Wednesday, February 11th, 2009 at 11:47 am
I have suspected for a long time and I openly told people in the fall of 2008 that certain entities were trying to harm the economy in order to ensure that Obama would get elected in the November elections. If you watched the stock markets in the months before the election of 2008, you saw these massive declines at the end of the day almost every day. These declines were by entities selling massive amounts of stock in what clearly looked like an attempt to sink the stock markets each day in time for the prime time news each night.
Now we have confirmation that there was a massive “run on the banks” by some unknown entity on September 18, 2008 in an effort to affect the election. Democratic Representative Paul Kanjorski (PA-11), Capital Market Subcommittee Chair in the US House of Representatives, describes this stealth bank panic in the video below (transcript follows).
I suspect there was an economic coup d’état in September of 2008 by extremely wealthy Liberals and Democrats and we simply were not smart enough to see it happen right in front of us. I also suspect that the plan succeeded in getting Obama elected but is now completely out of control.
It’s because of the misconceptions out there that things were done that are misunderstood. We did not give the $700 billion dollars for the purpose of lending money. That was never in the program. It was misconstrued initially and put together with the suggestion by the Secretary of the Treasury that we would be buying what we called “dirty assets” — defective mortgages and securities that were held in these banks — that the government would find a way to create a market, buy them in, take them off the balance sheets of the banks so that the banks could continue to function normally…. I supported that, but also part of the bill, we gave the jurisdiction and authority to the Secretary of the Treasury to make investments in banks. He had very wide authority because quite frankly, we’re not the experts on the Hill as to how to solve this problem. And the problem is a multi-faceted problem, so we gave great flexibility to the Secretary of the Treasury to act….
I was there when the Secretary and the Chairman of the Federal Reserve came those days and talked with members of Congress about what was going on…. Here’s the facts, and we don’t even talk about these things. On Thursday [September 18] at about eleven o’clock in the morning, the Federal Reserve noticed a tremendous draw-down of money market accounts in the United States, to the tune of $550 billion dollars was being drawn out in the matter of an hour or two. The Treasury opened up its window to help. They pumped a hundred and five billion dollars in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn’t be further panic out there, and that’s what actually happened.
If they had not done that, their estimation was that by 2 o’clock that afternoon, five-and-a-half trillion dollars would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed. Now we talked at that time about what would happen if that happened. It would have been the end of our economic system and our political system as we know it.
And that’s why, when they made the point we’ve got to act and do things quickly we did. Now Secretary Paulson said, “Let’s buy out these sub-prime mortgages.” That’s when he came to Congress. But he said, “Give us latitude and large authority to do many things as we decide necessary. And give us seven hundred billion dollars to do that.”
Shortly after we enacted our bill with those very broad powers. The U.K. came out and said, “No, we don’t have enough money to buy toxic assets. Instead, we’re going to put our money into banks so that their equity grows and they’re not bankrupt.” And so the U.K. started that process and that’s true. It was much cheaper to put more money in banks as equity investment than to start buying their bad assets, because it became early determined that we’d probably have to spend three or four trillion dollars of taxpayer’s money to buy these bad assets. And we didn’t have… we only had seven hundred billion dollars. So Paulson made a complete switch, went in and started putting money in buying securities and reinvesting in the banks of the United States. Why? Because if you don’t have a banking system you don’t have an economy. And although we did that, it wasn’t enough money, and as fast as we did that, the economy has been falling, and the reason last week… We’re really no better off today than we were three months ago because we’v had a decrease in the equity positions of banks because other assets are going sour by the moment….
The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post.
Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level – a 22 percent decline! – while the clang of the opening bell was still echoing around the cavernous exchange floor.
According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning.
The panicked selling was directly linked to the seizing up of the credit markets – including a $52 billion constriction in commercial paper – and the rumors of additional money market funds “breaking the buck,” or dropping below $1 net asset value.
The Fed’s dramatic $105 billion liquidity injection on Thursday (pre-market) was just enough to keep key institutional accounts from following through on the sell orders and starting a stampede of cash that could have brought large tracts of the US economy to a halt….
Democrat economic policies are steering us into a collision course with disaster. This raises the question whether they understand or if they are so consumed by the desire for power that they don’t care.
From its peak a little over a year ago, the Dow Jones Industrial Average is down some 42%. This downward spiral coincides with the rise of the Democrats’ political star, now President Elect, pushing a platform of higher individual taxes, higher business taxes, increased capital gains taxes, increased government (deficit) spending and redistribution of wealth. Unfortunately for the Republicans, the voter blames the party in power for the economic problems and that blame was soundly felt at the polls last week. Clearly, the Republicans who are leaderless, unprincipled and lacking articulate spokespersons are not blameless. They pandered to the public as Democrat lite on the premise that they could win Moderates and Independents by moving left. They also failed in oversight with respect to Fannie Mae and Freddie Mac. Yes, the Democrats were in charge of those bloated and corrupt cash cows and yes, the Democrats blocked efforts that might have brought reform. However, a real leader of the opposition party would have gone directly to the public with the facts in evidence of what was occurring. But no; “real leader” and “Republican” has become an oxymoron. Consequently, the voters took the party to the woodshed and thought that by putting the fox in charge of the henhouse we chickens could be saved.
But there is a unique characteristic to financial markets. They don’t look back, they look forward and when they do they see even more economic calamity in the offing evidenced by clearly announced Democrat plans. Plans that will dig a hole so deep that recovery will be decidedly painful if achievable at all. Waiting in the wings to exploit our economic weakness are a host of foreign enemies who are growing their economies and their military capabilities. Health care, college tuition and earned income tax credits will be the least of our concerns given emerging geopolitical issues viz a viz Israel, Iran, Syria, South America, North Korea, China, Russia and Al Qaeda. We are fiddling while our manufacturing base crumbles and the only growth sector for jobs is government. Who will be there to manufacture the military hardware in support of a major defense build up?
At the foundation of our problem is taxation. High corporate tax rates force companies to shift manufacturing to lower taxed countries. If your profits are taxed at 35% in the US and 12% in Ireland, certainly the Chief Financial Officer is going to recommend the Board of Directors shift to Ireland. The same scenario exists for small companies where the majority of private sector jobs originate. Taking money from productive people who make over $250 K and giving it to unproductive people under that threshold stifles and kills growth. Jobs are being lost, not created. At the same time the small business infrastructure necessary for the support of larger companies crumbles.
On top of this, seeds are being sown for a concurrent problem with inflation and/or stagflation. Bailout monies on top of increased entitlements on top of unfunded liabilities for Social Security, Prescription Drugs, Medicare and Medicaid cannot be financed without printing more money. And that is a recipe for disaster. Better buy a wheelbarrow to carry your money to the grocery store. The 20% mortgages under Jimmy Carter will look like a bargain.
The coup de grâce is energy. Instead of incentives to utilize our own resources and get off foreign oil, the plan is to increase that dependence by instituting cap and trade* and continue blocking exploration, utilization of coal, natural gas and nuclear power. Cap and trade alone will dramatically increase the cost of electricity compounding the exporting of jobs and manufacturing caused by high taxes. Energy is critical to growth. Without affordable energy business cannot produce economically. Further compounding matters the consumer has yet another drain on discretionary spending.
This is not complicated. High taxes and energy costs kill jobs. Without jobs there is no consumer and without jobs and consumers there is no tax base. Where will the money come from to fund the entitlements?
Here are some anecdotal references to ponder:
California representative Maxine Waters during a hearing on oil prices said to company executives “…when we socialize you…”
Massachusetts representative Barney Frank, who brought us the Freddie and Fannie debacle, wants to give auto companies a bailout package in exchange for installing a government master to control product development.
New York representative Charley Rangle, himself a tax evader, wants to find more creative ways to tax wealthy people.
Virginia representative Jim Moran thinks it is wrong for people to believe they can hold on to their wealth.
President elect Obama plans to let the Bush tax cuts expire in 2010 creating a substantial tax increase by default thereby exacerbating the recession.
Others in Congress have called for a 25% reduction in defense spending to fund social programs.
New York City Mayor Michael Bloomberg wants to raise taxes and fees to offset budget shortfalls. New York State is facing a massive deficit and the Unions and the legislature do not want to cut spending. The political entities are, in effect, going out of business and the unions and the democrat controlled legislature believe they can continue spending as if nothing is happening!
The market sees where all this is leading and investors are jumping ship.
While Congress plans more and more entitlements to be paid for with money and taxes that are no longer there, the country’s economic base crumbles and melts away. Along with it goes our defense infrastructure and related manufacturing base that forms the foundation of our strength and security. In addition to the markets, the world sees where we are headed and has only to pick the right time and place to deliver a knock-out blow.
Perhaps if we had a truly independent media and taught critical thinking skills in our schools, tough questions would be asked and the voting public would have a better appreciation for why we are on this track and where it is taking us.
So, do the democrats understand or care? Looks like what they care about is power and control but are so blinded that they can’t see the oncoming train.
*Cap and Trade: — A flexible environmental regulation mechanism that sets an overall limit on the emission of a certain pollutant, but allows companies that can easily reduce emissions to sell credits to other companies for which such reduction would be difficult. The cap ensures that emissions will not exceed a desired amount.
When Congress declares a crisis and says a bill must be passed or the world will end, it’s time to make sure your wallet is still under your control.
According to the Treasury Department, the number $750B was picked out of the air — no data point of reference. When people like Barney Frank and Chris Dodd, two of the key people who caused the mess, are allowed to write the legislation to clean it up, said bill is a non-starter. Barney Frank, whose lover was made a Fannie Mae director (who eventually quit to pursue a career with Pottery Barn). Chris Dodd, who didn’t realize he got special treatment on his loan from Countrywide.
The government has no business nationalizing this debt and forcing us to pay for it. I submit that yesterday’s down market (big in points but not among the top 10 percentage wise) was more because of fear the bill would pass.
A bill in excess of 100 pages that contained provisions giving the Treasury Secretary unlimited power (not subject to review), allocating 20% of future gains to groups like ACORN, La Raza, et al and facilitating federal takeover of municipal pensions, are cause enough to fear what other provisions are buried to serve liberal self-interests at the expense of the taxpayer and the economy.
A solution that stimulates the free market would have been much more supportable and economically desirable. Such incentives as elimination of capital gains taxes, serious reduction in corporate taxes that would enable business to grow and employ here rather than Ireland and Georgia where tax rates are 12%, revocation of Mark to Market which is causing balance sheet distortions and freeing up our energy resources which would create taxable income. Repeal of the Community Reinvestment Act and the associated governmental extortion perpetrated on banks forcing them to make unsecured loans would not only help, it would keep people like Barack Obama from making hay suing banks for non-compliance and forcing their insolvency.
Government is not the solution — it is the problem. A famous person once said this.
Clearly, availability of cheap energy would not only substantially affect the market but would be tantamount to freeing up consumers from what amounts to a significant foreign tax on disposable income. Off-shore drilling would avail the states of significant royalty income which would easily mitigate the buyout dollars while creating jobs. Similarly, expansion of nuclear utilities would also unburden business, stimulate US-based expansion and jobs as well as free up more consumer disposable income.
Instead of raising the national debt and putting our children in hostage mode, government needs to downsize and dramatically cut spending. Prescription drug entitlement would be a good place to start. Looming in the future are the unfunded liabilities for Medicare and Social Security. The $750B simply defers doomsday for a brief period and sets the scenario for an unrecoverable crash through devaluation of the dollar.
We have many enemies out there against whom we had best have a thriving economy. What do you think would happen if China took advantage and seized Formosa? What if Venezuela, with Russian support, expanded its influence militarily in South America. And what happens when, not if, Iran attempts to destroy Israel?
And the liberals are concerned about national health care? I suppose the two or three rich people who are left standing will pay for it. I wonder if Franklin Raines and Jerry Johnson will be able to handle those taxes or if they’ve so cooked their personal books they qualify for food stamps too.
We can get out of this mess if we enable the free market. Most assuredly, we will collapse if we enable any further empowerment of government and expand the national debt to levels that erode our currency and national security.
The mainstream media outlets just cannot resist hyping the news. Following the failure of the financial bailout legislation in Congress, the stock market declined as expected — by 6.98%. Here are the comparison figures at the Monday close:
It was not spectacular. In the context of history, it was not even in the top ten market downturns. For an excellent review of the top ten, see The Dow’s Worst Days, a slide presentation by Forbes.
The following information compiled by American Funds puts this in perspective, showing the frequency of declines in the Dow Jones Industrial Average since 1900. Clearly, they are regular cyclical occurrences. It is also obvious that, even without the bailout fiasco, we were way overdue for a 20% bear market just in the normal run of things.
A history of declines (1900–December 2007)
Type of decline
(–5% or more)
About 3 times a year
(–10% or more)
About once a year
(–15% or more)
About once every 2 years
(–20% or more)
About once every 3-1/2 years
The operative verb here is DECLINED. Yes, the stock market DECLINED in “paper value.” There are just as many factories, homes, hospitals, oil refineries, roads and bridges, grocery stores, train stations, etc. in the United States now as there were this morning. And all these real assets have just as much real value to the American people as now as they did this morning — to manufacture our goods, shelter our families, provide our health care, produce our fuel, facilitate transportation, broker our food supply, and transport our products.
So how do the news outlets describe what happened?
You have got to love this. Can’t you just see all the financial reporters frantically searching through their thesauruses for new and different ways to say DECLINE? Their challenge is to inject a gripping emotional narrative into the facts of the day, so as to compete for ratings with their competitor news outlets.
Unfortunately, they do not serve the public well in doing this. Thank goodness for Lou Dobbs! He got it exactly right on his television programLou Dobbs Tonight this evening. He asked:
Do you believe today’s Congressional vote against the Wall Street bailout is a victory for the American people and a rejection of the attempted extortion by corporate and political elites?
At latest reading, over 80% of the American people see it that way. Lou went on to say that it would be better to lose money than to sacrifice our principles. But let’s put the losses in perspective. Today the market lost $1.2 Trillion dollars in “paper value.” The numbers went down, and eventually they will go back up, and the so-called “loss” will just be a statistic, a memory.
The alternative would have taken more than half that amount in real productivity — $700 Billion dollars — out of the pockets of ordinary Americans and given it to the power brokers, real value robbed from the people that they would never see again. And for what? To buy a bailout that nobody was sure would work, and that House Republican Minority Leader John Boehner described as a “mud sandwich.”
The $700 Billion bailout of the US financial markets — Emergency Economic Stabilization Act of 2008 — has just failed in the House of Representatives, with 133 Republicans and some intelligent Democrats holding the line against financial socialism. The bill needed a simple majority of the 435 members to pass — 218 votes. The final vote was 228 to 205 against passage, thirteen votes short.
The Dow Jones Industrial Index is dropping steadily, but it is not in free fall. It is experiencing a sell-off, but not a panic. There may be as much as a 20% drop, but then the market will correct itself, as investors holding a large cash allocation in their portfolios begin to see buying opportunities.
And that is the way that the free market system is supposed to work. Assets should be valued based on a market consensus of their utility to the American enterprise, and should not be artificially propped up by government interference. The misguided social engineering practiced by successive Democratic regimes with our tax money got us into this mess. Mercifully, enough of our congressmen decided that throwing another $700 Billion of our good money after the untold trillions of bad investments was not a solution.
The difference between the Great Depression and the present situation is the increased financial sophistication of the American public as a whole. In 1929 investment in the stock market was the province of the very wealthy. Today, almost every American has a stake, in their college savings and retirement accounts. While many do this investing through funds with companies like T. Rowe Price, Equitable, Fidelity, and Templeton, many also purchase stock in companies they like or buy municipal and corporate bonds. They understand that the market will fluctuate.
In comparing the present crisis to the Great Depression as a rationale for the proposed bailout, Fed Chairman Ben Bernanke and United States Treasury Secretary Henry Paulson failed to take into account the difference in the collective financial intelligence of the citizenry between then and now. They only looked at mathematical models for asset pricing. But the free market is driven as much by ideas and expectations as it is by monetary data. That is its strength.
Most Americans understand this. The savvy electorate screamed in outrage at the prospect of being soaked another $700 Billion to pay for the past mistakes of Congress under the duress of a phoney manufactured crisis. And a majority of their congressmen, every single one of them facing elections in just five short weeks, did the sensible thing and defeated this outrageous scam.
Thaddeus McCotter, R-Mich., said the bill posed a choice between the loss of prosperity in the short term or economic freedom in the long term. He said once the federal government enters the financial market place, it will not leave. “The choice is stark,” he said.
On the evening of September 18th 2008, the American democratic system was replaced by a financial dictatorship.
What was billed as a “Federal Bailout” was nothing less than a bloodless coup. The Wall Street Gang had taken over the White House and control of Washington. Congress promised not to resist, and pledged to pass legislation as demanded.
Warning that America’s financial system was perilously close to collapse unless immediate action was taken, economic martial law was declared.
The American people were told that from this day forward, they would be responsible for paying off the bad debt from any failing private financial enterprise deemed “too big to fail.”
Treasury Secretary Henry Paulson, spearheading the coup, sought unrestricted authority to spend the nation’s money as he saw fit. The first order of business by the Economic Czar was to take trillions of dollars of bad debt from crumbling investment banks and insurance companies and transfer it to the backs of already debt-burdened citizens….
While the transfer of “toxic instruments” from private firms to the national debt will enrich those companies that once had owned them, the measures taken will do nothing to keep the sinking US economy from going under.
The biggest casualty, besides indentured American servants held responsible for paying off the debt, is the US dollar. The greenback’s getting slaughtered on the foreign exchanges and gold prices, the safe-haven commodity, are once again soaring….
In order to assess the credibility of Celente’s current article, you may consider two articles from the Winter Issue 2008 of his organization’s journal. The full articles are available by paid subscription only, so we offer the synopses.
Just as the Twin Towers collapsed from the top down, so too will the US economy from an Economic 9/11. When the high-stake speculators, banks, brokerages, and buyout firms that leveraged billions with millions get hit … everything underneath them will turn to rubble…..
The Panic of 08
Failing banks, busted brokerages, toppled corporate giants, bankrupt cities, states in default, foreign creditors cashing out of US securities … whatever the spark, the stage is set for panic in the streets. When the giant firms fall, they’ll crush the man on the street…..
For additional information, you should also read this commentary by Ron Paul, a United States Congressman and one of the most trusted libertarian/Republican spokespersons for the American public:
Commentary: Bailouts will lead to rough economic ride
By Ron Paul
(CNN) — Many Americans today are asking themselves how the economy got to be in such a bad spot.
For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.
Unfortunately, the government’s preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention….
Instead of looking at a recession, we might very well be looking at a complete economic meltdown more global in nature rather than national, something that most of us never have seen.
The problems include a very weak American dollar; a trade deficit that will come to roughly $700 billion at year-end; the cost of foreign oil that has literally tripled over the past two years; possible trade wars with countries like China, which own sizable portions of our bond markets; a ballooning Federal budget that has gone from $2.1 trillion to $3.6 trillion in just eight years – a whopping growth of 75% (!); a national debt of $9.6 trillion, closing fast on $10 trillion with a debt ceiling placed at $10.6 trillion and which cost the American taxpayer $230 billion in interest alone last year; untold numbers of jobs that are being outsourced to foreign nations through Free Trade acts adding long-term pressure to unemployment; a nation which has maxed out on credit-card debt; millions of Americans losing their homes due to the subprime lending debacle; and last but not least tens of millions of baby-boomers now coming close to retirement, which will dry-up America’s tax base while adding huge amounts to Social Security and Medicare outlays….
The New York Times has an interesting piece about Fed Chariman Bernanke’s speech to a Virginia gathering regarding re-adjustment (again) of subprime lending practices.
I am not certain how I feel about most of what he said, but the following sentence stood out from all the rest, and sent a chill down my spine:
“…our efforts today are concentrated on helping the financial system return to more normal functioning…”
Did I miss something? Was the financial system not functioning “normally” when the greedy, arrogant, short-sighted SOBs on Wall Street stole a couple of trillion dollars of other people’s equity and sent three of the largest economies in the world scrambling for the exits? Of course it was! The same people have been doing things like this for years.
It was not a bunch of Disney characters who helped Enron cook its books. In addition to Arthur Anderson, Enron was aided, abetted, and in at least one case instructed, by some of the largest financial houses in the country in avoiding regulations so that it could hide its losses and misstate its earnings. There is a whole litany of such abuses both before and after Enron. My point is that the financial system was functioning “normally” when all of that was going on, and the money changers were stealing us blind.
Now, I don’t want to rain on Mr. Bernanke’s parade, but might I be so bold as to suggest that the last thing we need is for the financial system to “return to more normal functioning”? Besides, it’s too late. There is just not that much left to steal.
The time was when only the wealthy had brokerage accounts. But nowadays, average folk participate in and profit from the expansion of the United States economy — a rising tide that lifts all their boats.
With this influx of middle income investors, the brokerage houses have been pressed to offer banking services — loans, money market (cash) accounts, checks, credit cards — such as average folk need, in order to remain competitive with traditional banks in this demographic.
With their brokerage account, for example, Morgan Stanley offered a “liquid asset” cash account that could be tapped like a checking account via both paper checks and e-checks, and a MasterCard. This account seemed the best of both the investment and the banking worlds. But banking, it turns out, is not Morgan Stanley’s long suit.
The credit cards are usually issued for two year terms that need renewal at predictable intervals. A typical MasterCard might run from January 2007 through January 2009, so the cardholder would be out blissfully shopping for the two-year interval without a care. He would be mindful of the fact that, in about a year, he would have to start watching his mail for the replacement card.
Ignoring the traditional wisdom that says, “If it ain’t broke, don’t fix it…” Morgan Stanley decided, without warning, to issue new credit cards this past October that would replace the current two-year cards. Out of the blue, they mailed these new (black, not platinum) cards to their account holders throughout the US. What they failed to mention AT ALL was that these were replacement cards smack in mid-period.
All over the country the account holders saved these as a back-up alternative filed away in a safe place, and continued to use their regular cards, which were CONTRACTED IN GOOD FAITH to be viable for another full year. A few days before Christmas, all these cards suddenly became invalid.
Fathers out shopping for Christmas present toys for their children found themselves unable to purchase. Businessmen treating their clients to lunch fouond themselves in the embarrassing position of having to ask their guests to pay. Ditto for those householders treating out-of-town Christmas guests to a night on the town.
In my own case, pressed with tasks from an on-going home remodeling project, I had let the larder run empty, secure in the knowledge that I could always go online and have pizza delivered from Papa John’s on my credit card. My cash reserves were depleted from tucking cash into the Christmas cards of the kind service folk who had been helping me all year.
Mouth watering, I logged on to the restaurant website, selected my three favorite pizzas — spinach alfredo deluxe, Hawaiian chicken barbeque, and all the meats. I had let this task go until the last possible moment, and I was starving. But when I tried to place my order, the computer told me that my credit was no good. I had oatmeal for Christmas. It was all that was left in the house.
When the holiday was over and the Morgan Stanley offices were once again open for business, I called to see what the problem was, and found out about the new black card. After a foray through my junk snail mail, I found the card and tried to authorize it by phone. I didn’t want to eat oatmeal for another day.
But lo, the authorization number presented a continuous busy signal. All day. I was competing for phone access with irate Morgan Stanley cardholders from the entire United States who were in the same predicament.
Fortunately, I have a Morgan Stanley account representative who, since I’ve been with him for over twenty years, is virtually a family friend, and he got my card authorized from the “inside.” I can eat. I will live. The next day the branch manager for the local office called and apologized for the inconvenience. I don’t think I have any problems with the local branch. They have always given good service.
However, I have serious concerns about the executives who created the mess. The Chairman and CEO is John J. Mack, and he bears the ultimate responsibility for what happens underneath him. That’s where the buck stops. He should step down.
Mack was accused by former SEC investigator Gary Aguirre of insider trading. Mack allegedly tipped off hedge fund Pequot Capital about a 2001 merger deal between GE Capital and Heller Financial. In the testimony by Aguirre at a Senate Judiciary Committee hearing in June 2006, Aguirre said that Pequot had amassed a short position in General Electric shares in the weeks before the deal and a long position in Heller, and the $7 billion hedge fund earned some $18 million in profit once the deal was announced. Aguirre said that he was fired from the SEC on September 1, 2005 because he was aggressively pursuing the investigation and wanted to interview Mack about the findings. According to Aguirre, his efforts to talk to the politically well-connected Mack were blocked by senior SEC officials. This allowed Mack enough time to secure his position as CEO of Morgan Stanley. Had he been investigated in mid 2005 by the SEC, Mack would not have been a viable CEO candidate for Morgan Stanley.
The twelve member board includes a token black with a jazz background and two women. But the majority are privileged old white men whom, one suspects, have a life-style so different from the average person that they do not comprehend our needs, or care, except for what information they need to exploit us and use our savings.
Together, they presided over a massive functional failure that any savvy housewife could have predicted. And I have to ask myself, if they are that clueless, whether I trust them with my hard-earned money and my retirement account. I’m looking at alternatives.
Media Footnote: As a courtesy to our dial-up visitors, our audio and video media are configured to download completely before play is enabled. The control buttons in the media bar will highlight when the selection is ready for playback. Selections must be started manually by clicking the PLAY button.
License: Unless otherwise expressly stated all original material, of whatever nature, created by the American Daughter staff and included in this website, its related pages and archives, is licensed under a Creative Commons License, some rights reserved.
Disclaimer: This is a personal website. The views expressed here are those of the authors and no one else. This is also an experiment in thinking out loud, so there are no warranties as to the reliability or accuracy of anything presented here. Source material -- references, citations, quotes, photos, and other elements -- is gathered from publicly available materials and some of this material may be restricted. Any trademarks used are the property of their respective creators or owners. All are reproduced under the principle of Fair Use.